The number of vacant houses has fallen by more than a third. Could this be the recovery sign that blogging realtor Jim Duncan hopes it is?

On April 20, Duncan posted an entry on realcentralva.com that noted, according to his calculations, that the percentage of vacant homes listed for sale in the Multiple Listing Service has fallen from 36 percent in 2007 to 23 percent today.

First, what's so bad about vacant homes? For starters, even under the best of circumstances, some insurance companies require an inspection before agreeing to underwrite a home that has been vacant. Other insurers demand something called a vacancy endorsement if the house is going to be uninhabited for more than 30 days after the purchase.

Potential buyers are understandably concerned about the potential neglect and deferred maintenance items that so frequently accompany homes left empty by job transfers, marriages, deaths, or other changes in family circumstances. But when a vacancy occurs due to a foreclosure or a short sale, as is so often happens in these current market conditions, concerns multiply.

A homeowner facing foreclosure may have neither the means nor the motivation to continue the upkeep, a situation that often results in significant deterioration before the bank takes ownership. Once uninhabited, bank-owned properties become susceptible to break-ins and thefts– especially of copper wiring or plumbing– not to mention occupancy by squatters.

From a market perspective, an increase in the number of occupied homes, whether owner- or tenant-occupied, would seem to indicate a return to market health. A higher occupancy rate suggests fewer deteriorating properties, which deter buyers and negatively harm nearby property values. A higher occupancy rate also signals an increased demand for housing.

However, Duncan tempers his optimism with caution, and raises a couple of compelling questions.

First of all, what about the so-called "shadow inventory"– that massive backlog of foreclosed properties that banks have yet to release? Common sense suggests that a flood of properties could saturate the market and push prices down. But when asked, Duncan declines to project.

"Nobody knows what the effect will be," he says, "and anyone who claims otherwise has information that no one else has; this remains a great unknown."

On his blog, Duncan points to an article suggesting that home ownership may be becoming outmoded. Certainly, rising rental rates (they jumped 2.4 percent last year) suggest that renting is becoming more popular these days. Factors deterring potential homeowners include fear of investing in an asset that may continue to lose value, concern about resale, worry over job security, and uncertainty about the effect of rising interest rates– all of which can be alleviated by renting.

Indeed, current statistics appear to support this gloomy hypothesis about ownership. Virginia homeownership rates slipped from 72.8 percent to 67.2 percent over the past six years. Nationwide, the rate was 66.3 percent in late 2011, down from a high of 69.2 percent in 2004, a decrease that may have helped contribute to a prediction that 2012 will be "the year of the landlord."

A spike in the number of groundbreakings for new homes late last fall evoked optimism that the housing market was starting to recover. However, most of the projects involved multi-family units rather than single-family dwellings.

It’s possible, as Jim Duncan points out, that some of the formerly vacant houses previously listed for sale in the Charlottesville MLS are now operating as rentals, but that’s not necessarily a bad thing. Investors have mortgages to cover, too, and if rental income leads to fewer defaults, that translates into fewer short sales and foreclosures, and ultimately means better overall market health.

"There's a shift away from homeownership being the primary goal for everybody," Duncan summarizes. "Hopefully we’ll see a more sustainable rate of homeownership."

Owning is the only way to go if you want a place for life... which many do.... anyone that bought a house in 1995 is still worth 200k and if they refied when rates were low in 2010 they would have a mortgage of less than 500 bucks a month. After tax benefit that would be 400 bucks, plus they get future appreciation and savings as the value climbs. (which it will since the population is expanding and the cost of building new houses is over 100 bucks a foot. )

The best thing that could happen is for all of the foreclosires to be dumped at once, let people in the wings get deals and once they are all gone prices will climb immedialty becaqsue there will be no "shadow" inventory to spook buyers.

When circut city had its bankruptsy sale best buy and crutchfield suffered for a month and then divieded a three way market by two.

Let the free market work.. stop bailing out the banks and make them unlaod at a loss.

Only THEN will the economy tunr around.

Chris April 30th, 2012 | 12:46pm

Bill, I agree with you 100%

Amigo1 April 30th, 2012 | 8:47pm

Many many people took the wrong fork in the road believing that a house was primarily an investment tool rather than their home. People might benefit from developing roots and making a commitment to their homes rather than treating houses like motel rooms or rental cars whose main goal is to generate money.

perspective April 30th, 2012 | 9:31pm

So the long story short, more renters, less owners. And what prey tell does that presume? It ain't rocket science folks and it ain't good.

Duncan May 1st, 2012 | 5:05pm

I have had great disdain for Cville Association of Realtors and their misleading statements about things turning around. Whenever I want to know what is actually happening in the real estate world, I listen to Jim Duncan. When we are ready to buy our next home, he is who I will call. I have never met the man, but he sugarcoats nothing. That's who I want representing me and my interests.

Cville Eye May 2nd, 2012 | 12:31am

There are many more renters today simply because they can not get credit to buy. Many of them were buying homes and lost or walked away from them. They have bad credit. This group of people is rarely discussed.
Flooding the market with abandoned homes may have a deterious effect upon the existing housing in the area as Detroit has seen with its huge amount of vacant housing."Mayor Dave Bing has pledged to knock down 10,000 structures in his first term as part of a nascent plan to "right-size" Detroit, or reconfigure the city to reflect its shrinking population."http://online.wsj.com/article/SB1000142405274870395080457524243343533872... . Unfortunately Detroit is losing a lot of its architecutral history: http://www.amusingplanet.com/2011/07/abandoned-houses-of-detroit.html

Overzealous Writing Police May 2nd, 2012 | 8:53am

Whoever this writer is, she's quite fond of "first, first of all, for starters..."

You have them in back-to-back sentences in the second paragraph: "First, what's so bad about vacant homes? For starters, even under the best of circumstances, some insurance companies require an inspection before agreeing to underwrite a home that has been vacant..."

Awkward...

Then halfway down the article there's another one, "First of all, what about the so-called "shadow inventory"